Idaho tax incentive hurts locally-grown businesses

Wayne Hoffman Articles, Fairer, flatter taxes

Employers Resource in Boise is one of Idaho’s top privately-held companies, and its story is one of homegrown entrepreneurialism. George and Mary Gersema started their payroll processing and human resources company 30 years ago. They’ve never asked anything of the state or local governments. George and Mary have grown their business to include offices in eight states.  Through it all, they’ve kept their headquarters in Boise.

George and Mary woke up a couple of weeks ago to a story in the newspapers that will have serious consequences for their business, their employees and their families.

“I was outraged,” George told me. George learned that his home state of Idaho offered a special tax incentive to one of his competitors, Paylocity — an Illinois company. The state Department of Commerce gleefully announced that it would give Paylocity a 28 percent break on its future tax liabilities for its promise to hire employees in Boise. The company plans to hire at least 500 workers during the next five years, with the first batch of around 20 expected by the end of January.

The tax break for Paylocity is worth about $6.5 million. What that means for Employers Resource: having to compete on an uneven playing field, courtesy of state government officials.

“Paylocity just got $6.5 million that we didn’t get,” George said.

I asked Department of Commerce Director Jeff Sayer if the agency considered the impact to Employers Resource before striking the deal with Paylocity. The Tax Reimbursement Incentive, approved by lawmakers in 2014, requires such analysis.

Sayer said it did. Of Paylocity’s special deal he explained, “Given that their purpose in coming to Boise was simply to accommodate their national growth; given they are already competing at a national level, and given that their services are already available to Idaho companies, we did not view their arrival as a direct affront to our Idaho businesses in that market.  As I understand it, Employers Resource as you indicated, is already competing with them in national markets and Paylocity’s presence in Idaho does not change that.”

But George sees it differently. “I now have to compete with them for talented staff, which they do with a direct subsidy. How do I combat that?”

When government provides special breaks to some companies and not others, it naturally drives up the cost of doing business for companies not lucky enough to score a special deal. Paylocity’s deal isn’t to bring 500 new jobs to Idaho; it’s to hire for 500 new jobs, an untold number of which may come from Idaho’s existing employment pool.

The press release announcing the deal recognizes this. Boise Valley Economic Partnership Executive Director Clark Krause said, “Great companies like Paylocity look for high quality people, and there is no better place to find them than the Boise Metro.” I’d add, Paylocity will “find them” at its competitors — like Employers Resource.

Employers Resource — and, indeed, any other company that has talented employees with knowledge of human resources, payroll management and software — will need to pay more in order to prevent an exodus to the government-subsidized Paylocity. That’s a hidden tax that Idaho companies can’t afford. Additionally, when lawmakers debate the possibility of lowering the income tax, they’ll have to contend with $6.5 million in tax revenue the state won’t receive, which means higher marginal tax rates for everyone.

Special tax gimmicks like this special tax break make for lousy tax policy. Moreover, it’s one heck of a lousy way to reward successful, dedicated and hardworking business leaders like George and Mary Gersema for their 30-plus year commitment to Idaho.